Belmont Club

Risk Corridors

If you’ve never heard of “risk corridors” you’re missing an important part of your education.  They are part of Obamacare. Megan McCardle explains that they are way for insurance companies to insure themselves against loss; the spoonful of sugar that makes the medicine go down. A risk corridor is a pathway of money down which an Obamacare provider can safely tread.

The insurers are putting in a lot of work helping to get the exchanges working, and they will be very necessary allies indeed if Democrats don’t want to go into next year’s midterms just as insurers are announcing their 2015 rates, and indeed, whether they’ll be staying in the insurance market.

But it seems that the administration is looking for ways to sweeten the deal for insurers. Politico reports, “Administration officials say they can take care of that problem. They’re going to look at ways to adjust special payment mechanisms built into Obamacare, called ‘risk corridors,’ that pay health plans if they have higher costs than they expected.” …

It’s a mechanism meant to deal with individual insurers who miscalculate their actuarial risk …

You would think that betting on the President’s plan is a sure thing. However, there’s a distinct probability the Obamacare website isn’t even going to work by the deadline the administration set for itself.  Therefore the insurance companies may have to step in and enroll by any means possible not only those who were uninsured to begin with, but the millions who have lost their insurance since Obama improved it.

CNBC reports that the “White House working with insurers to bypass … On a mission to help people bypass distressed health-insurance websites, the Obama administration said it may allow big insurers to directly sign up those who qualify for tax credits …” There is now nothing more urgent than to save the consumer from the consequences of the administration benefits. And the only sure way is getting the insurance companies to do it.

The move came as a pressure mounted with only a few weeks left before the rescheduled deadline for the website to work—Nov. 30, reported the newspaper. services 36 states, which refused to run their own exchanges.

The New Republic writes that “the odds that will be working well by late November seem shakier by the day. A new story in the Washington Post quotes “an official with knowledge of the project” who said the system was still struggling with high volumes of customers … the definition of  ‘working well’ is a subjective matter.” Nobody is talking about a victory lap any more. The administration will be glad to escape with its skin whole.

At this point, however, transforming the existing, opqaue market into a more competitive, transparent one must come second to making sure everybody can get coverage on time. That’s why administration officials have been huddling with insurers about how to make more use of direct enrollment. Step one is to make sure that “side door” enrollment works smoothly. It doesn’t fucntion well right now, because—you guessed it—it relies on the same information technology system that powers Fixing that portal, which techies tell me is called an “application programming interface,” is high on the administration’s to-do list. But it’s not clear (to me) whether improving the portal might require design modifications—or to what extent its success depends upon other, ongoing repairs to the federal website.

The Daily Caller says Joe Biden appears to be distancing himself from the crowning achievement of the president. Who can blame the Vice President for wanting to keep the spare tire in the trunk as all four tires on the road blow out. Unfortunately the program’s difficulties are going to be a massive headache for the insurance companies.

However, they may be protected from loss by the "risk corridors".

McCardle wonders how the president can twist the law into necessary contortions to do this:

I’ve been skeptical of the argument that the risk corridors will fix things; they’ll mitigate insurer losses if the patient mix is too sick, but they don’t turn losses into profit. It’s a mechanism meant to deal with individual insurers who miscalculate their actuarial risk, not a whole marketplace filled with sicker and older patients than expected.

But this is a bit different; the administration is clearly looking for a way to increase the payments so that they defray more of the unexpected costs. Only looking at the statute, I don’t see how they can. The language is extremely clear …

you’d see that the payments are quite firmly set as a percentage of allowable costs that exceed expectations — and “allowable costs” is quite precisely defined. I am not a lawyer, of course, but this doesn’t seem to offer bureaucrats at the Department of Health and Human Services much discretion to run a slush fund.

But that difficulty will prove little hindrance to the Lightworker. Marco Rubio has figured it out already and is pointing out little noticed fine print in Obamacare that allows the government to reimburse insurance companies for up to 80% of their losses. The Washington Examiner notes:

As the troubled rollout of President Obama’s health care law has threatened to wreak havoc with the individual insurance market, more analysts are focusing on a program buried within Obamacare that compensates insurers for excessive losses.

Last Thursday, Department of Health and Human Services officials revealed that they were looking into ways of expanding the program to funnel more money to the industry.

Yet even though it exposes American taxpayers to potentially massive financial liabilities, the Congressional Budget Office never calculated the potential costs of this program as part of its original Obamacare cost estimate, let alone an expanded version of it.

The “risk corridor” program is one of several within Obamacare that were designed protect insurers against the threat of excessive losses stemming from the new requirement that they must cover individuals with pre-existing conditions.

The only person at risk is the consumer and the taxpayer.  Nobody can say how much it will cost.  See if you can figure it out from the instructions provided.  And there’s more. “Risk corridors” not only funnel money to insurers, they also put the entire industry at the mercy of Obama. The Obamacare screwup and the offload of its fallout to the to the insurers has done three things at once.

1. Destroyed or damaged the insurance customer base;
2. Imposed gigantic costs which they are forced to absorb;
3. Made them dependent on “risk corridors” to have any chance to make good their losses and to turn a profit.

The companies can either take the bribe and get rich or refuse the payoff and go broke. In this Obama is following in the footsteps of the founder of Britain’s National Health Service, Lord Bevan. “Doctors were initially opposed to Bevan’s plan, primarily on the stated grounds that it reduced their level of independence. Bevan had to get them onside, as, without doctors, there would be no health service. Being a shrewd political operator, Bevan managed to push through the radical health care reform measure by dividing and cajoling the opposition, as well as by offering lucrative payment structures for consultants. On this subject he stated, ‘I stuffed their mouths with gold’.”

The choice for customers, however, is more restrictive. They can only go broke if only because they have to provide “the gold”. In recompense, however, they get ‘better’ insurance as this Democratic Senator explains.

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The phrase “risk corridors” is a wonderful invention. Obamacare is beginning to have more doors than a Charlie Chan mystery house. There are side doors, backdoors, risk corridors. Doubtless there are secret panels, trapdoors and revolving portals as well. They may not lead to anywhere but ruin, but the view is picturesque in a gothic sort of way. However, there’s no risk to it at all. Heads Obama wins, tails someone else loses.


Risk Corridors

Like a tunnel that you follow
To a tunnel of it’s own
Down a hollow to a cavern
Where the sun has never shone,
Like a door that keeps revolving
In a half forgotten dream,
Or the ripples from a pebble
Someone tosses in a stream.

When you knew
That it was over
You were suddenly aware
That your policy was turning
To the new

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